An advisory opinion has been requested from the Director of Commercial Development Land Programs (the Requestor) in the Department of Economic and Employment Development (DEED) regarding whether he may participate in a housing rehabilitation loan program funded through the Department of Housing and Community Development (DHCD). The federal source of funds is the Community Development Block Grant program, which is also a source of funds for DEED programs. Based on the information provided regarding the nature of the Requestor's activities and assuming that he has not and will not in the future involve his official position in the private activity, we advise that this undertaking would not be barred by the provisions of the Public Ethics Law.

This request is presented by a DEED employee who manages three commercial and industrial development programs: the Maryland Industrial Commercial Rehabilitation Fund, the Maryland Industrial Land Acquisition Program and the Community Development Block Grant—Economic Development Program. All of these programs are aimed at stimulating economic development. The Industrial Commercial Loan Program is a State-funded program that provides loan funds to businesses at lower than market rates for any purpose connected with a commercial or industrial project. The Industrial Land Program is also State-funded, but loan funds are available for the purchase of land or buildings for industrial purposes only. These are both loan programs where the loan is actually made to the local government, which in turn enters into a loan or other relationship with the private developer. In this transaction the local government pledges the full faith and credit of the jurisdiction and is bound to repay the loan.

The Community Development Block Grant Program is a federal entitlement program involving a grant made to the State Department of Housing and Community Development. The amount of funding is based on a federal formula (about $6M in FY 1990). Pursuant to an interagency agreement between DHCD and DEED, 27 percent of these funds are transferred to DEED for use in economic development financing. These funds are not directed in any way to housing efforts. Rather, they are targeted to business and industrial development and can be used for buildings, land, equipment, and in limited circumstances as working capital. These programs involve specific job-driven criteria. That is, the criteria for evaluation are based on the number of jobs to be created by the activity. As with the other programs, these grants are to a local government. They can be used for public infrastructure activity such as sewer and water (as long as the project relates to a particular private endeavor) or loaned to a private entity for industrial development or business uses consistent with the program.

This request involves the Requestor's interest in participating in a private capacity in the part of the Block Grant Program managed and processed by the DHCD. It involves a house that he purchased in Church Hill, Maryland in 1988 prior to assuming his current position with DEED. He indicates that his prior position (also with DEED) did not involve him with the Town of Church Hill or in any way with the housing component of the Block Grant Program. He therefore indicates that he purchased the property with the intention of funding rehabilitation through a Block Grant loan from DHCD through the Town of Church Hill, under a grant commitment made to the Town from DHCD around the time the property was purchased. The Requestor's grant application has been filed for two years and was filed when he did not have his current job. He indicates that his dealings with the Town in the grant process are directly with the Mayor and Council of the Town, who function as the Housing Authority. The Town has a population of 319 and an annual operating budget of $135,000. It has no economic development activity and only one paid employee.

The Requestor indicates that he has not had any dealings with the Town of Church Hill in the context of his present State position, and apparently the Town has never participated in any of these programs. The Requestor and his supervisor, DEED Assistant Secretary for Finance Programs, recognize that it is possible that he could have to deal with the Town in the future if it were to seek to participate in any of the three programs he manages. Both the Requestor and the Assistant Secretary believe that the likelihood of this is very remote. Given the usual size of loans under these programs and the requirement that the jurisdiction pledge its full faith and credit for repayment, these programs are not ones that small jurisdictions like Church Hill are likely to pursue. As to the Block Grant Program in particular, the projects must be to develop and service an industrial or commercial area, and for a town the size of Church Hill this is a very unlikely activity. The Requestor also indicates that the management and certification process connected with the Block Grant Program as administered by DEED tends to be more of an undertaking than the very small jurisdictions can handle.

This request presents issues primarily under the employment provisions of §3-103(a) of the Public Ethics Law (Article 40A, §3-103(a), Annotated Code of Maryland, the Ethics Law) and possibly under the prestige provision of §3-104. Section 3-103(a) prohibits an official or employee from being employed by or having a financial interest in an entity that is subject to his authority or that of his agency or an agency with which he is affiliated, or has contractual dealings with the agency (subsection (a)(1)(i)). It further bars any other employment relationship that would impair the individual's impartiality or independence of judgment (subsection (a)(1)(ii)).

In applying these provisions of the Law, we have taken into account the Law's very broad definition of business entity as "any entity regardless of form" (§1-201), and advised that investment relationships involving real property that is held for rental purposes result in the existence of a business entity with which the individual has both an employment and interest relationship. The Requestor's involvement with this transaction would therefore be viewed as an employment and interest relationship that could be covered by §3-103(a). Since this transaction is directly with a local jurisdiction as part of a program administered by DHCD, however, it would not involve the Requestor's agency, or an agency with which he is affiliated, and the strict prohibition of subsection (a)(1)(i) would not apply. The issue here is therefore whether this activity comes within the impairment provision in §3-103(a)(1)(ii) of the Law.

We have viewed the impairment provision of the Law as a complement to the strict prohibition of subsection (a)(1)(i), designed to address those situations where there are no contractual or regulatory relationships, but where there is an employment affiliation that results in more general interactions with the person's State employment that would raise clear and serious concerns as to the ability of the individual to engage in the private activity and at the same time carry out his official duties with impartiality and independence of judgment. In implementing this provision of the Law we have looked at the specifics of the person's official duties and the private activity, considering, for example, whether the private activity would bring the individual into contact with persons that he deals with in his State duties, and whether the private activity is impacted by persons or programs in the individual's agency.

In the context of this situation, we note that the Requestor's loan relationship is a single transaction with a local jurisdiction, and that it involves a program of another State department whose function and programmatic goals relate to housing, an area not addressed in the Requestor's official responsibilities or those of his agency. Though the ultimate federal source is connected, the Block Grant activities at the State level seem to be sufficiently separated that the common federal source does not create a relationship that presents issues under the impairment provisions. Moreover, the Requestor's dealings in his private undertaking are with a local jurisdiction and do not involve any dealings with officials or others with whom he might also be expected to interact in his official duties. Though we recognize the possibility that this Town could be an applicant in one of the programs the Requestor manages, we are persuaded by the Requestor and his supervisor that this likelihood is remote.

Under all of these circumstances we conclude that the Requestor's participation in the rehabilitation project through the Church Hill Block Grant program would not present the kinds of concerns regarding independence of judgment and impairment that are addressed by § 3-103(a)(1)(ii) of the Ethics Law, and that this activity would therefore be allowable. We wish to make it clear of course, that other provisions of the Law continue to apply. In particular, § 3-104 of the Law bars the use of one's official position for one's own economic gain or that of another. Our conclusion therefore assumes that the Requestor's involvement in this project did not flow from or otherwise involve his functions or relationships with other State officials through his own official position. We also assume that this would continue to be the case as the undertaking progresses. Also, should the Town of Church Hill become involved in programs relating to the Requestor's official duties, he should take care not to participate or have any official interaction with the Town or its officials. (See §3-101 of the Law.)

William J. Evans, Chairman
   Mark C. Medairy, Jr.
   Robert C. Rice, Ph.D.
   Mary M. Thompson

Date: December 12, 1990